CONFIDENTIALMobile Handset Competitor Analysis: SiemensSAMSUNG ELECTRONICS CHINA (SEC China)August 20, 2001This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion. OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK1. Background information•Location•Registered capital•Managementteam•Equitystructure•Starting year•Number of employees•Era analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus on•Marketing, advertising and promotion•Distribution (channel and sales force)•Organization structure•Ownership structure•Sales •Profit 2. Strategy 3. Product/market •Mission•Vision•Corporate strategy•Market position•Key product offerings•Key customers•Value proposition•Geographic focus•Pricing1 KEY ISSUES TO PROBE - SIEMENSStrategyProduct/marketValue chainstrategyOrganization &ownershipFinancialperformance•What does Siemens aim to be in 2005 in mobile communication?•How are Siemens’s product and value delivery system strategies different from its competitors’?•What will be Siemens’s future products and which segments of the market will it target at?•In which segment of the market is Siemens strong or weak?•What is the key success factors for Siemens to pick up market share quickly since 1999?•How does Siemens’s distribution channel differ from its competitors’?•How capable is Siemens in R&D, manufacturing, sales and marketing?•With a broad product portfolio, how does Siemens organize or reorganize itself?•How does Siemens perform and is its performance expected to improve further?2 BACKGROUND INFORMATION1. Background information•Location•Registered capital•Managementteam•Equitystructure•Starting year•Number of employees•Era analysis4. Value chain strategy5. Organization and ownership6. Financial performance•Focus on–Marketing, advertising and promotion–Distribution (channel and sales force)•Organization structure•Ownership structure•Sales •Profit 2. Strategy 3. Product/market •Mission•Vision•Corporate strategy•Market position•Key product offerings•Key customers•Value proposition•Geographic focus•Pricing3 CHINA HAS DEVELOPED INTO A MAJOR PILLAR FOR SIEMENS BUSINESS IN ASIA PACIFICLocation•Based at Germany•50+ JVs, 28 offices in China •Shanghai is the largest Siemens location outside GermanyInvestment•Invested USD 0.44 billion in ChinaBusiness•All business sectors of Siemens including information and communication, automation and control, power,transportation and household appliance, etc.Starting•Entered China's telecommunication in 1985•Information and communication business started 1991Employees •30,000 staff in information and communication mobile globally•25,000 employees for all business sectors in china History•1982 Siemens Beijing office opened•1985 entered China's telecommunication market•1990 established JV Beijing International Switching System•1994 Siemens China founded in Beijing•1998 formed business segment - Information and Communication•2000 joined forces with CATT and Huavei for next generation mobile technology. Founded TD-SCDMA international forum with Datang, CATT, Huawei, Motorola, Nortel, China mobile, and UnicomImplication•An early entrant to China's telecommunication market•Broad product portfolio representing all business sectors of Siemens worldwideSource: Siemens press release4 STRATEGY1. Background information•Location•Registered capital•Managementteam•Equitystructure•Starting year•Number of employees•Era analysis4. Value chain strategy5. Organization and ownership6. Financial performance•Focus on–Marketing, advertising and promotion–Distribution (channel and sales force)•Organization structure•Ownership structure•Sales •Profit 2. Strategy 3. Product /market•Mission•Vision•Corporate strategy•Market position•Key product offerings•Key customers•Value proposition•Geographic focus•Pricing5 SIEMENS AIMS TO BE NUMBER 2 IN MOBILE COMMUNICATION MARKET IN CHINA Product •Focus on stylish new models with suitable pricing targeting mid to low end of the market •Invest in future products, e.g., TD-SCDMA handsets and wireless home network devices, etc.Strategy Value delivery system •Establish R&D centers for mobile communication in Beijing and Shanghai •Mobile handset production capacity being raised to 14 million in Shanghai, a growth of 40% since 2000•Intensive marketing on new products with most competitive pricing •Carefully select exclusive channel partner PTAC to maintain uniform price level nationwide to ensure healthy sales •Helps resellers set up service centers to handle repair and maintenanceVision•To be number 2 in the Asian mobile communication market (without Japan and Korea) 6 SIEMENS IS RISING STEADILY IN MOBILE HANDSETS SINCE 1999Monthly market share development (Percent of market in units sold)9899Jan ‘00Dec ‘00NokiaMotorolaSiemens EricssonSource: Retail AuditSource: IDC, McKinsey Analysis7 SIEMENS HAS OVERTAKEN ERICSSON TO BE NO.3 IN MOBILE HANDSET BY BOTH REVENUE AND SALES VOLUMEOthers SiemensEricssonMotorola199920012000Samsung NokiaBreakdown of sales by brand each yearPercentSource:GfK, IDC, McKinsey analysisOthers SiemensEricssonMotorola199920012000Samsung NokiaBreakdown of units sold by brand each yearPercent8 PRODUCT/MARKET1. Background information•Location•Registered capital•Managementteam•Equitystructure•Starting year•Number of employees•Era analysis4. Value chain strategy5. Organization and ownership 6. Financial performance•Focus on–Marketing, advertising and promotion–Distribution (channel and sales force)•Organization structure•Ownership structure•Sales •Profit 2. Strategy 3. Product /market•Mission•Vision•Corporate strategy•Market position•Key product offerings•Key customers•Value proposition•Geographic focus•Pricing9 •Siemens offers a compete range of mobile communication solutions including devices, infrastructure and applications. Siemens’s mobile handsets come with good quality and competitive pricing•Siemens targets the mid to low end of the mobile handset market. Most of its models are in the price range from below RMB 1000 to RMB 2200•Siemens has devoted great attention to the important 4th-tier cities and west China, hence its market share in these developing areas are relatively higher than its share in the more developed areas. KEY MESSAGES - PRODUCT/MARKET10 SIEMENS OFFERS A COMPLETE RANGE OF MOBILE SOLUTIONS INCLUDING DEVICES, INFRASTRUCTURE AND APPLICATIONSProductsNow and futureInformation and communication mobileSiemens product offeringsInformation and communication networks•Mobile network•Wireless home network & office network•Mobile handset–C2588 (small, light smart)–S2588 (brain truster)–3508 (small, light, sexy)–3518i (tough enough)–3568i (smart thinking)•Broadband network•IP network•Fixed-line network•Transmission network•Office network•Cable network•Take TD-SCDMA mobile handsets to serial production level by 2003•Offer the complete range of mobile solutions including mobile devices, infrastructure and applications, e.g., wireless home network,•Complete range of GSM, GPRS and UMTS mobile networks, unified messaging and mobile payment •Overall strategy of "a universe of one", pursuingIP driven voice and data communication and customer-oriented end-to-end solution and services Source: Siemens press release11 SIEMENS MODELS HAVE THE MOST COMPETITIVE PRICINGSource:McKinsey Analysis Product positioning Dec 2000A6188 (1.4%)8850 (1.8%)V8088* (3.9%)S800C (1.2%)A100 (0.8%)T28 (3.6%)8210 (4.6%)7.8%21.9%18.2%52.2%Business/professional Personal*WAP phoneProduct positioning June 20009110S800C (1.8%)V8088 (1.6%)8850 (1.7%)V998 (5.6%)3568* (0.5%)S600C (3.8%)7110* (0.9%)T28 (3.3%)8210 (3.7%)LF2000* (2.9%)6150 (1.8%)L2000* (4%)S2588 (1.8%)CD928 (1.1%)T18 (6.1%)T10 (1.2%)C2588 (3.2%)2188 (3.8%)L2088 (2.5%)3210 (2.2%)5110 (9.6%)368C (3.1%)3508 (1.6%)338C (0.6%)T2688 (4.8%)11.4%17.4%25.3%45.9%High High-mediumMedium-low Low Business/professional Personal*WAP phoneV998++ (6.9%)7689i (1.8%)LF2000i* (1.7%)3568* (1.7%)7110* (0.3%)6150 (0.9%)600C (2.3%)3310 (6.8%)3518i (1.8%)T18 (3.3%)CD928 (0.1%)S2588 (0.2%)C2588 (0.1%)T10 (0.7%)T2688 (6.2%) 3508 (3.9%)V2088 (1.0%)3210 (9.6%)5110 (5.9%)Retail price High High-mediumMedium-low Low Retail price RMB 3,500RMB 2,200RMB 1,600368C (2.3%)V2188 (1.3%)RMB 3,500RMB 2,200RMB 1,600Red - NokiaWhite - MotorolaBlue - EricssonBrown - SiemensGreen - Samsung8250 (0.0%)6210 (0.6%)12 SIEMENS TARGETS MID TO LOW END OF THE MARKETHigh(> RMB 3,500)Source:Sino-MR (Jan 2001 – Feb 2001), CCIDBreakdown of unit sold by brand for each price pointPercentHigh-mid(RMB 2,500-3,500)Mid(RMB2,000-2,500)Mid-Low(RMB1,500-2,000)Low (